5. LOANS

The Bank originates both adjustable and fixed interest rate real estate loans (excluding loans held for sale). The adjustable-rate loans are generally indexed to the FHLBNY five-year or seven-year borrowing rate. The contractual terms of adjustable rate multifamily residential and commercial real estate loans provide that their interest rate, upon repricing, cannot fall below their rate at the time of origination. The Bank's one- to four-family residential adjustable-rate loans are subject to periodic and lifetime caps and floors on interest rate changes that typically range between 200 and 650 basis points.

The primary areas of concentration of credit risk within the Bank's loan portfolio at December 31, 2012 were geographical (as the majority of real estate loans on that date were collateralized by properties located in the New York City metropolitan area) and

the proportion of the portfolio comprised of multifamily residential and commercial real estate loans. The Bank had no individual borrowers with aggregate outstanding balances equal to or exceeding regulatory limits for loans to one borrower at either December 31, 2012 or 2011.

At December 31, 2012 and 2011, the Bank had $243,784 and $357,058, respectively, of loans in its portfolio that featured interest only payments. These loans subject the Bank to additional risk since their principal balance will not be reduced prior to contractual maturity.

The Bank's consumer loans were composed of the following:

	December 31, 2012		December 31, 2011
Passbook loans (secured by savings and time deposits)	$	712	$	483
Consumer installment and other loans		1,711		1,966
TOTAL	$	2,423	$	2,449

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying them as to credit risk. This analysis includes all non-homogeneous loans, such as multifamily residential, mixed use residential (i.e., loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but the majority of such income is generated from the residential units), mixed use commercial (i.e., loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but the majority of such income is generated from the commercial units), commercial real estate and construction and land acquisition loans, as well as one-to four family residential and cooperative apartment loans with balances greater than the FNMA Limits. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of then existing facts, conditions, and values, highly questionable and improbable.

All loans not classified as Special Mention or Substandard were deemed pass loans at both December 31, 2012 and 2011.

The Bank had no loans classified as Doubtful at December 31, 2012 or 2011.

The following is a summary of the credit risk profile of the Bank's real estate loans (including deferred costs) by internally assigned grade as of the date indicated:

	Balance at December 31, 2012
Grade	One- to Four-Family Residential and Cooperative Unit		Multifamily Residential and Residential Mixed Use		Mixed Use Commercial Real Estate		Commercial Real Estate		Construction		Total
Pass	$	66,415	$	2,665,410	$	326,053	$	363,299	$	-	$	3,421,177
Special Mention		6,333		7,711		5,547		2,639		-		22,230
Substandard		2,987		3,248		8,533		28,593		476		43,837
Total real estate loans individually assigned a credit grade	$	75,735	$	2,676,369	$	340,133	$	394,531	$	476	$	3,487,244
Real estate loans not individually assigned a credit grade⁽¹⁾	$	16,141	‑		‑		‑		‑		$	16,141

⁽¹⁾ Amount comprised of fully performing one- to four-family residential and cooperative unit loans with balances equal to or less than the FNMA Limits. The credit quality of these loans was instead evaluated based upon payment activity.

	Balance at December 31, 2011
Grade	One- to Four-Family Residential and Cooperative Unit		Multifamily Residential and Residential Mixed Use		Mixed Use Commercial Real Estate		Commercial Real Estate		Construction		Total
Pass	$	66,949	$	2,587,573	$	320,556	$	364,462	$	-	$	3,339,540
Special Mention		1,133		7,101		10,562		9,244		2,576		30,616
Substandard		2,635		8,245		7,152		39,610		623		58,265
Total real estate loans individually assigned a credit grade	$	70,717	$	2,602,919	$	338,270	$	413,316	$	3,199	$	3,428,421
Real estate loans not individually assigned a credit grade⁽¹⁾	$	29,995	‑		‑		‑		‑		$	29,995

For consumer loans, the Company evaluates credit quality based on payment activity. Consumer loans that are 90 days or more past due are placed on non-accrual status, while all remaining consumer loans are classified and evaluated as performing.

The following is a summary of the credit risk profile of consumer loans by internally assigned grade:

Grade	Balance at December 31, 2012		Balance at December 31, 2011
Performing	$	2,415	$	2,445
Non-accrual		8		4
Total	$	2,423	$	2,449

The following is a breakdown of the past due status of the Company's investment in loans (excluding accrued interest and loans held for sale) as of the dates indicated:

At December 31, 2012
	30 to 59 Days Past Due		60 to 89 Days Past Due		Loans 90 Days or More Past Due and Still Accruing Interest		Non-accrual ⁽¹⁾		Total Past Due		Current		Total Loans
Real Estate:
One- to four-family residential and cooperative unit	$	336	$	155	$	-	$	938	$	1,429	$	90,447	$	91,876
Multifamily residential and residential mixed use		6,451		-		190		507		7,148		2,669,221		2,676,369
Mixed use commercial real estate		-		-		-		1,170		1,170		338,963		340,133
Commercial real estate		207		-		-		6,265		6,472		388,059		394,531
Construction		-		-		-		-		-		476		476
Total real estate	$	6,994		155	$	190	$	8,880	$	16,219	$	3,487,166	$	3,503,385
Consumer	$	2	$	5		-	$	8	$	15	$	2,408	$	2,423

⁽¹⁾Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2012.

At December 31, 2011
	30 to 59 Days Past Due		60 to 89 Days Past Due		Loans 90 Days or More Past Due and Still Accruing Interest		Non-accrual ⁽¹⁾		Total Past Due		Current		Total Loans
Real Estate:
One- to four-family residential and cooperative unit	$	1,221	$	-	$	-	$	2,205	$	3,426	$	97,286	$	100,712
Multifamily residential and residential mixed use		2,589		-		946		7,069		10,604		2,592,315		2,602,919
Mixed use commercial real estate		4,976		-		-		5,591		10,567		327,703		338,270
Commercial real estate		478		-		2,874		11,083		14,435		398,881		413,316
Construction		-		-		-		-		-		3,199		3,199
Total real estate	$	9,264		-	$	3,820	$	25,948	$	39,032	$	3,419,384	$	3,458,416
Consumer	$	12	$	5		-	$	4	$	21	$	2,428	$	2,449

⁽¹⁾Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2011.

Accruing Loans 90 Days or More Past Due:

At December 31, 2012, the Bank owned one real estate loan totaling $190 that was 90 days or more past due on its contractual balloon principal payment and continued to make monthly payments consistent with its initial contractual amortization schedule exclusive of the balloon payment. This loan, which is both well secured and expected to be refinanced during the year ending December 31, 2013, remained on accrual status at December 31, 2012 and was deemed a performing asset. At December 31, 2011, the Bank owned five real estate loans totaling $3,820 that were 90 days or more past due on their contractual balloon principal payment that continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payment. These loans remained on accrual status at December 31, 2011 and were deemed performing assets. These loans were either fully re-financed or satisfied during the year ended December 31, 2012.

TDRs.

At December 31, 2012, the Bank had twenty-two loans totaling $51,123 with terms that were modified in a manner that met the criteria for a TDR. Thirteen of these TDRs totaling $47,493 were commercial real estate loans, five loans totaling $1,953 were

multifamily residential and residential mixed-use real estate loans, three loans totaling $948 were mixed use loans with four units or less and the remaining $729 loan was a mixed-use commercial real estate loan. At December 31, 2011, the Bank had twenty-two loans totaling $48,753 with terms that were modified in a manner that met the criteria for a TDR. Twelve of these TDRs totaling $44,458 were commercial real estate loans, three loans totaling $1,657 were mixed-use commercial real estate loans, five loans totaling $2,013 were multifamily residential and residential mixed-use real estate loans and the remaining two loans totaling $625 were mixed use loans with four units or less.

The following table summarizes outstanding TDRs as of the dates indicated:

	As of December 31, 2012				As of December 31, 2011
	No. of Loans		Balance		No. of Loans		Balance
Outstanding principal balance at period end		22	$	51,123		22	$	48,753
TDRs on accrual status at period end		20		44,858		17		40,688
TDRs on non-accrual status at period end		2		6,265		5		8,065

The Company has not restructured troubled consumer loans, as its consumer loan portfolio has not had any problem issues warranting restructuring. Therefore, all TDRs have been made on real estate loans. The following table summarizes activity related to TDRs for the periods indicated:

	For the Year Ended December 31, 2012						For the Year Ended December 31, 2011
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Loan modifications during the period that met the definition of a TDR:
One- to four-family residential and cooperative unit		1	$	330	$	330		-	$	-	$	-
Multifamily residential and residential mixed use		1		459		459		2		573		573
Commercial real estate		2		4,430		4,430		6		30,095		30,095
TOTAL		4	$	5,219	$	5,219		8	$	30,668	$	30,668

During the years ended December 31, 2012 and 2011, the Company made modifications to other existing loans that were deemed both insignificant and sufficiently temporary in nature, thus not warranting the loans being deemed TDRs. Such activity was immaterial during the years ended December 31, 2012 and 2011. The Bank's allowance for loan losses at December 31, 2012 reflected $520 of allocated reserve associated with modifications identified as TDRs. The Bank's allowance for loan losses at December 31, 2011 reflected $1,851 of allocated reserve associated with modifications identified as TDRs. The reduction in the aggregate balance of allocated reserve associated with TDRs from December 31, 2011 to December 31, 2012 reflected improvement in the underlying conditions of nine TDRs with an aggregate reserve of $1,096 at December 31, 2011, that resulted in a determination that the allocated reserve was no longer warranted on these TDRs as of December 31, 2012. In addition, $235 of reserves as of December 31, 2011 were charged-off during the year ended December 31, 2012. Otherwise, there was no impact on the Bank's allowance for loan losses related to TDRs as of December 31, 2012 or 2011.

As of December 31, 2012 and 2011, the Bank had no loan commitments to borrowers with outstanding TDRs.

A TDR is considered to be in payment default once it is 90 days contractually past due under the modified terms. All TDRs are considered impaired loans and are evaluated individually for measurable impairment, if any.

There were no TDRs for which there was a payment default within twelve months following the modification during the years ended December 31, 2012 and 2011 (thus no significant impact to the allowance for loan losses during the years ended December 31, 2012 and 2011 related to such loans).

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that all contractual amounts due will not be collected in accordance with the terms of the loan. Factors considered by management in determining impairment include

payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays or shortfalls generally are not classified as impaired. Management determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Generally, the Bank considers TDRs and non-accrual multifamily residential and commercial real estate loans, along with non-accrual one- to four-family loans in excess of the FNMA Limits, to be impaired. Non-accrual one-to four-family loans equal to or less than the FNMA Limits, as well as all consumer loans, are considered homogeneous loan pools and are not required to be evaluated individually for impairment unless considered a TDR.

Impairment is typically measured using the difference between the outstanding loan principal balance and either: 1) the likely realizable value of a note sale; 2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected solely from liquidation of the collateral; or 3) the present value of estimated future cash flows using the loan's existing rate. If a TDR is substantially performing in accordance with its restructured terms, management will look to either the present value of the expected cash flows from the debt service or the potential net liquidation proceeds of the underlying collateral property in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has re-defaulted, generally the likely realizable net proceeds from either a note sale or the liquidation of the collateral is considered when measuring impairment. Measured impairment is either charged off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses.

Please refer to Note 6 for tabular information related to impaired loans.

Delinquent Serviced Loans Subject to the First Loss Position

As of December 31, 2012 and December 31, 2011, the Bank serviced a pool of multifamily loans sold to FNMA, and retained the First Loss Position.

Under the terms of its seller/servicer agreement with FNMA, the Bank is obligated to fund FNMA all monthly principal and interest payments under the original terms of the sold loans until the earlier of the following events: (i) the Bank re-acquires the loan from FNMA or it enters OREO status; (ii) the entire pool of loans sold to FNMA have either been fully satisfied or enter OREO status; or (iii) the First Loss Position is fully exhausted.

At December 31, 2012, within the pool of multifamily loans sold to FNMA, there was one $474 loan 90 days or more delinquent and one $229 loan delinquent between 30 and 89 days. At December 31, 2011, within the pool of multifamily loans sold to FNMA, one $1,342 loan was delinquent between 30 and 89 days, and one $757 loan was 90 days or more delinquent.